Quinn wants to raise taxes, delay paying bills

Illinois Gov. Pat Quinn delivers his budget address to a joint session of the Illinois General Assembly on the House floor Wednesday at the Illinois State Capitol in Springfield. (AP Photo/Seth Perlman)

SPRINGFIELD – Gov. Pat Quinn proposed a 33 percent income tax increase Wednesday that he said would prevent deep cuts to education funding, part of a budget plan that depends mostly on borrowing money and letting unpaid bills pile up for another year.

He presented legislators with a stark choice: Cut support for schools by $1.3 billion or approve a tax increase. But even with a tax increase and spending cuts, Quinn's budget would depend on letting about $6 billion in bills simply go unpaid in the coming year.

That could be disastrous for people who need help with child care, job training, services to the elderly, drug counseling and more. The local organizations the state hires to provide those services, already struggling to survive, could go under if they don't get their money.

The Democratic governor's proposal amounts to the opening bid in election-year negotiations over how to handle a $13 billion deficit, the largest in Illinois history. Quinn himself began the bartering by formally proposing to slash school spending and then immediately offering higher taxes as a better choice.

"I am challenging you today to consider a wise and responsible alternative to damaging cuts in education funding," he told legislators in a 21-minute speech.

He asked lawmakers to raise the tax rate to 4 percent, up from 3 percent now. That would generate $2.8 billion a year, the same amount he sought unsuccessfully last year. His staff said the money would go solely to prevent education cuts and to make overdue payments to Illinois schools.

Republican leaders flatly rejected the tax increase. Until Democrats agree to overhaul big-ticket items like Medicaid spending and government pensions, they said, Republicans won't even talk about a tax increase.

"And we're not going to be bullied into it," said Senate Minority Leader Christine Radogno, R-Lemont.

Quinn's budget does assume about $500 million in reduced Medicaid and pension costs, his aides say.

The Republican candidate for governor, Bloomington Sen. Bill Brady, called the Quinn budget plan "a disaster" but said he is willing to work with Quinn solve the problem without a tax increase.

"I really don't want to be governor and be saddled with the albatross that he's created in this fiscal mess," Brady said.

An Illinois family paying $900 in taxes this year would pay $1,200 under Quinn's proposed increase.

When Quinn proposed an increase last year, he wanted to ease the blow to poor and working class families by increasing the amount of income exempt from taxes. That idea has been abandoned under the new proposal.

Total spending for the budget year starting in July will be about $55 billion, Quinn said, but much of that is federal money or special funds where the state has little control. The section where the state has broad freedom to tackle the deficit through cuts or delays amounts to roughly $32 billion.

"That approach is both heartless and naive. Taking a chain saw to our state budget ... is just plain wrong," Quinn said.

Lawmakers last year rejected Quinn's proposal to raise income taxes by 50 percent. Now, in an election year, lawmakers aren't any more eager to consider the idea.

Lawmakers could pass a temporary budget and postpone any politically touchy decisions until after the November election. At that point, legislators will be safe from voter backlash and Quinn will either have won a full term or have been beaten by Brady, who opposes any increase.

Between bills left over from the current year and the projected gap next year, the total deficit will top $13 billion, Quinn said.

Quinn's proposal would "balance" the budget by cutting expenses $2 billion, borrowing $4.7 billion to pay overdue bills and simply letting about $6.3 billion in bills go unpaid until the next fiscal year.

If Quinn gets a tax increase, the $1.3 billion in education cuts would be abandoned. That means the total spending cuts would amount to only about $700 million. Quinn aides say the governor already has cut about $2 billion in bureaucratic spending.

Here's a look at the plan:

Q: How much would taxes go up?

A: For individuals, taxes would go up by one-third, from a 3 percent rate to 4 percent. The corporate rate would climb by about one-fifth, from 4.8 percent to 5.8 percent.

Q: How does that translate to dollars?

A: Someone with a taxable income of $30,000 now pays $900 in Illinois taxes. Under Quinn's proposal, that would climb to $1,200. In total, the increase would generate about $2.8 billion a year in new revenue for the state, Quinn's office said.

Q: How does that compare to the tax increase Quinn proposed last year?

A: In terms of revenue, they're the same, $2.8 billion. But under the new proposal, the tax rate would not go up as much as under last year's proposal. Quinn is now proposing a one-point increase; last year he wanted to bump the rate by 1.5 points.

Q: How can different two different tax rates generate the same amount of revenue?

A: Last time, Quinn wanted to spare poor and working-class families from the brunt of the tax increase, so he proposed expanding the state's personal exemption — the amount of income that is exempt from taxes. He said then that a family of four making $60,900 or less would actually have seen their tax bill go down.

This time, Quinn has abandoned that approach. He's not asking for any tax break to help offset the increase.

Q: Why the change?

A: Quinn offered no explanation. Last year, he called it a matter of fundamental fairness.

"The state should not tax struggling families into poverty. Working families who live from paycheck-to-paycheck must have tax relief," Quinn said then.